Gone are those days when you called up your agent and told him you want to invest into mutual funds. He filled up the various forms of respective mutual funds companies and submitted with their respective AMCs. This is a classic way of investing in India since long time and still going on. This type investment is completely OFFLINE mode for you. But, in today technology’s era world, more and more people are going online to buy consumable goods, gadgets and even groceries, there is no reason why you cannot investing in mutual funds through online. And fortunately, several portals are now opened for the convenience of investing and transacting online on mutual funds to investors at the click of a button. Though there are multiple online portals available for investors where they can invest into mutual funds online, many gullible investors are left confused where they should adopt one of the best online platforms. Indeed yes, it is more challenging to select best one, if you are considering investing and managing your investment through online portals. Before ride on these portals, you should know about how these online platforms work, how they are routed your payment or how they are safe and what is their creditability? In this cobra post, you would know about how online portals work for your convenience and the facility to invest in mutual funds.

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Investing through AMC websites

At a rudimentary level, respective AMC’s websites offer the facility to transact in mutual funds online. This is the safest and the cheapest route for the investors because you go to respective fund house’s website, log into your online MF account, select your schemes and pay the money directly to respective AMC through their payment gateway. However, this may not be the most convenient way to invest online those investors who are going to invest at the first time. They have still to need to access a physically approach the fund houses or point of centres to submit their application form. Once they are assigned their folio number along with the PIN, all subsequent transactions in the same folio can be enabled online using their bank account. However, it can be done through only one fund house under their various schemes.  But, if you intend to invest in others or separate fund houses, you need to go through the entire procedure again except KYC procedure as it is one time activity. Secondly, you have to remember 6-7 different PINs for various fund houses, may be a big headache for a layman investor. Moreover, you cannot see a consolidated view of your all mutual funds portfolio across all fund houses of various schemes at a single place. For systematic investment plans (SIPs), AMC websites work a bit differently. You need to add your chosen fund house as a biller in your Internet banking account, just like you add a utility like electricity or telephone to pay your monthly bills. In this way, investing through AMC websites are offering little convenience, but more hiccups. It may make sense to use this method, those investors who want to make lump sum and invest with a large amount.

Investing through Demat Account

Many banks and brokerage houses are offering the demat route for mutual funds investment. A demat account for mutual funds is similar to that for shares. The biggest advantage of buying and selling through a demat account, is that you control everything from one place but it is a costly affairs. Though it helps you to consolidate all of your holdings and allows a view of investments in a single snapshot, rather than having to go through several statements issued by different mutual funds, there are several layers of costs associated with holding mutual fund units in demat form: the depositories and brokers are both out to claw some money from you. You would have to pay a charge to open the demat account, as well as the annual demat fees. Sales of units would also involve a charge of Rs20 on each occasion. This charge may vary from DP to DP. And if the DP is not the bank that is directly linked to the AMC, it could take around 7-10 days for the money to be credited to your account. If you start investing into mutual fund through demat route, you cannot transact offline and nor go directly to your respective AMCs for transacting through them. You have to stick with your isolate demat account.  Since holding mutual funds in demat form is not compulsory, unlike shares, investors exercise the smart choice, avoid mutual fund investment through demat route and keep your financial life simple.

Investing through Third party online platforms

Presently, there are many handfuls of such online platforms; some of the more prominent once include Funds India, NJ India Invest, Funds Supermart, Scripbox and the Next Advisor etc. Typically, these online platforms are available with either intervention or non-intervention of advisors or distributors. At the core, these platforms facilitate not only paperless transactions but also give the host of multiple benefits at zero cost and a wide range of options. All you have to do is to create an online account with the portal, after which you can invest into mutual funds with access to schemes across all fund houses or other instruments on offer. These sites have tied-ups with most leading banks, which enable seamless online transactions one can set up an ECS mandate with the bank for SIPs. It also eliminates the need to remember multiple logins and passwords. You can also create a separate account for each family member and consolidate view of all investments.

While the convenience is compelling, these portals may be trusted with your money, especially if the firm the shutdown their business or on their payment mechanism as your existing mutual fund holdings would not be affected as all assets are held in your name in funds, the folios are maintained by RTAs like Karvy and CAMS and, hence, it is well protected.  However, different platforms can have subtle differences. For lump sum purchases made on websites such as FundsIndia.com and Fundsupermart.com, your payment goes directly to the fund house via a payment gateway. For SIPs, the story is a bit different at some firms. To be able to transfer money every month, you need to enable an electronic clearing system (ECS) mandate. Here, the money first goes from your account to the supermarket’s own bank account and then it moves to your fund house account. There’s a risk that if your supermarket turns out to be malicious, it could run away with your money. Though the chances of this happening are minimal at present since there are very few such companies and they are watched closely. At FundsIndia.com, your SIP investments first get deposited in their account and then it moves to your fund house. It often causes unnecessary delay of your every monthly SIP in range of 2-3 days from the pre-fixed date of your monthly SIP which may lead to bear notional loss by investor during the volatility of market. Technically, since these online platforms do not provide registering of monthly SIP facility directly with AMCs, your transaction takes place on the realization of payment, not on due basis.  They are, actually registered with your monthly SIP as an additional investment (SIP) for every month which may defeat the purpose of discipline investing as originally designed for SIP.

Investing through NSE-NMF-II

Securities and Exchange Board of India (SEBI) has allowed the mutual fund distributors to use the Exchange infrastructure for facilitating mutual fund transactions for their clients. In order to access the system, for executing mutual fund transactions, NSE has developed an online platform NMF II. The USP of this platform, it is end-to-end platform, while others are aggregators that bring together distributors on a technology platform and ride on full-fledged platforms. While registering with this platform, you can purchase, redeem, Switch and other transactions of all mutual fund schemes across all fund houses. However, your distributor has allowed setting up your customized systematic investment plan (SIP), Systematic Withdrawal Plan (SWP), Systematic Transfer Plan (STP), other non- transactions of mutual fund. Since, the system has no intermediates, every transaction and your payments are directly routed through registrar and transfer agents (RTAs) like CAMS and KARVY which cover all mutual fund schemes across all fund houses, there is no chance for misappropriation of your funds at transaction level. The system is like working as investing through directly AMC’s website, hence makes use of standard security protocols for online transactions, so all money transfers are adequately secured. Moreover, the portal does not have access to your funds. Your account is linked to your bank account, so that when you place instructions online, the bank transfers the amount directly to the fund houses. When you withdraw or redeem the investment, NSE-NMF-II transfers the money directly to your bank account. You can even keep track of your money by verifying the authenticity of any transaction with statements from the Fund Company or RTA through this portal.

This could change the way MFs are bought or sold in a big way. Those investors who are not inclined to open a demat account can now invest through NSE NMF-II, if your distributors are members there. In fact, the NSE-NMF-II also has plans to link your Permanent Account Number to its backend database that will pull out all your previous MF transactions, even if you have purchased units outside the NSE. This will enable your distributor to give you a holistic view of your portfolio.

Conclusion

Though all these portals offer investment in mutual funds with access to schemes across fund houses but it does not mean you do not require any financial advisor. These platforms provide you to convenience to transact online hassle free, not an advisory on investing into funds.  In the absence of an advisory, you need to be clear about the purpose of investing and your risk profile before choosing a product. Your advisors do provide you to design a mutual fund portfolio tailored to meet your requirements, based on your risk profile and financial goals. They also advise on the setting up your systematic investment plans (SIPs) and systematic transfer plans (STPs) in multiple funds. They also keep track of your holdings, along with in-house research and analysis, to build the ideal portfolio. But the biggest game changer has now come that SEBI has allowed to SEBI RIAs to invest client’s money in DIRECT PLANS, but under the adviser’s RIA code. They can now use these platforms, offer cheaper Direct plans with lower expense ratios due to absence of commission, service them on such investments and charge fees at the same time. Before choosing the way you want to invest in mutual funds, you should weigh the cost and convenience. If you investing for long-term financial goals, you should definitely go through a SEBI registered Investment Advisor who gives you sound advice and you are confident that paying him a fee would help you get a better knowledge and returns.

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Suresh Kumar Narula

SEBI Investment Advisor, Founder & Principal Financial Planner at Prudent Financial Planners
Suresh K Narula is founder and Principal Financial Planner at Prudent Financial Planners. He has earned the professional CERITIFIED FINANCIAL PLANNER and got registered with SEBI as Investment Advisor. He writes on personal and financial planning articles and got published in Dainik Bhaskar, Business Bhaskar and The Financial Planner's Guild, India. He is also a member of Financial Planner's Guild India ( An association of practicing SEBI registered Investment advisers) to create awareness about Financial Planning in general public, promote professional excellence and ensure high quality practice standards. Suresh received his an M.com from Himachal Pardesh University and an MFC from Punjab University, Chandigarh. He can be reached at info@prudentfp.in
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